Treasury Bills Explained: How Everyday Investors Can Buy Government Debt

Treasury bills are one of the oldest financial instruments in the world and, until recently, almost never discussed in personal finance content aimed at everyday investors. High-yield savings accounts get the attention. CDs get written up regularly. T-bills largely do not.

That changed when interest rates rose sharply in 2022-2023 and T-bill yields jumped to 5%+ while savings account rates lagged. Suddenly millions of individual investors were opening TreasuryDirect accounts and buying T-bills directly from the US government.

Rates have moderated since then, but T-bills remain a genuinely useful tool for conservative cash management, and they have a tax advantage that most people overlook.

What a Treasury Bill Is

A Treasury bill (T-bill) is a short-term debt obligation issued by the US Department of the Treasury. The US government uses T-bills to borrow money for short periods. In exchange, investors receive the face value of the bill at maturity.

T-bills do not pay periodic interest like a bond. Instead, they are sold at a discount to face value. The difference between what you pay and what you receive at maturity is your return.

Example: You purchase a 6-month T-bill with a face value of $1,000 for $978. At maturity, you receive $1,000. Your $22 return represents your interest.

Terms available: 4 weeks, 8 weeks, 13 weeks (3 months), 17 weeks, 26 weeks (6 months), and 52 weeks (1 year).

T-bills are backed by the full faith and credit of the US government, making them the closest thing to a completely risk-free investment that exists. The credit risk is effectively zero. Price risk exists if you need to sell before maturity, since T-bill prices fluctuate in the secondary market as interest rates move, but if you hold to maturity you receive exactly the stated return.

How to Buy T-Bills

Method 1: TreasuryDirect.gov (direct from the government)

The US Treasury sells T-bills directly to individual investors through weekly auctions at TreasuryDirect.gov. You submit a non-competitive bid, meaning you accept whatever rate the auction determines rather than trying to name a price. Non-competitive bids are always filled.

Steps:

1. Create a TreasuryDirect account (requires Social Security number, bank account)
2. Navigate to BuyDirect > Bills
3. Choose your term (4-week, 8-week, 13-week, 17-week, 26-week, or 52-week)
4. Enter the face value amount ($100 minimum, multiples of $100)
5. Select the auction date (auctions occur every week for most terms)
6. The purchase price will be slightly less than face value; the difference is your return

Minimum purchase: $100.

Maximum per auction: $10 million for non-competitive bids.

Settlement: Funds are debited from your bank account on the issue date.

Method 2: Brokerage account (Fidelity, Schwab, Vanguard)

Most major brokerages allow you to buy T-bills through their bond or fixed income marketplace, both at auction (new issues) and in the secondary market (existing bills). This is often more convenient for people who already have brokerage accounts because it keeps everything in one place and integrates with their investment account.

Note that brokerages typically show T-bill yields as annualized rates rather than the discount percentage, making comparison easier.

Current Yields and Tax Advantage

As of early 2026, 3-month T-bill yields are approximately 4.1-4.3% annualized. 6-month T-bills are yielding approximately 4.0-4.2% and 1-year T-bills approximately 3.9-4.1%.

These rates are broadly similar to high-yield savings accounts at leading online banks. The meaningful difference that makes T-bills distinctly attractive in certain situations: T-bill interest is exempt from state and local income taxes.

For investors in high-tax states, this is material. An investor in California (13.3% top state rate), New York (10.9%), or New Jersey (10.75%) who earns 4.2% on a T-bill effectively earns a higher after-tax yield than a savings account paying 4.4% that is subject to state tax.

Quick comparison for a California investor earning $100,000:

Despite the lower gross yield, the T-bill nets more after state taxes in California. This advantage grows with state tax rates.

T-Bills vs I Bonds vs CDs vs High-Yield Savings

Who Should Use T-Bills

High-tax-state residents. The state tax exemption provides a meaningful after-tax yield advantage over savings accounts and CDs in states with high income taxes.

People building a CD-like structure with shorter terms. T-bills offer terms as short as four weeks, shorter than most CDs. You can build a rolling ladder of 4-week or 13-week T-bills that keeps your cash in competitive-yield instruments with access every month or quarter.

Corporate treasurers and large cash holders. The absence of a per-year purchase limit makes T-bills a natural destination for large cash positions that exceed FDIC insurance limits.

Those who want the absolute safest possible short-term instrument. FDIC insurance is extremely reliable but involves counterparty risk with the FDIC itself. T-bills are obligations of the US government directly, one layer closer to the source.

Real-World Examples

Example: Diane, 47, high earner in New York

Situation: Diane holds $30,000 in cash for a planned home renovation. She is in the 24% federal bracket and the 9.65% New York state bracket. She wants the best after-tax return on the money she will not touch for six months.

Comparison: A high-yield savings account at 4.4% earns $660 gross; after federal (24%) and state (9.65%) taxes, she keeps approximately $436. A 6-month T-bill at 4.1% earns $615 gross; after federal tax only (state exempt), she keeps approximately $467.

She chose: The T-bill. Despite the lower gross rate, she earns more after taxes.

Example: Ryan, 24, building a short-term savings ladder

Situation: Ryan has $8,000 above his emergency fund that he wants to keep accessible but earning more than a savings account while he decides what to do with it over the next three to six months.

What he did: He bought four 4-week T-bills of $2,000 each, staggered one week apart. As each one matures, he rolls it into a new 4-week T-bill unless he decides to deploy the money. His yield is approximately 4.2% annualized, and a portion of his money matures every week.

Common Mistakes

Conflating T-bills with T-bonds or T-notes. Treasury bills are short-term (under 1 year). Treasury notes have terms of 2-10 years. Treasury bonds have terms of 20-30 years. They are different instruments with different risk and return profiles. T-bills are the short-term option.

Forgetting that T-bill interest is still federally taxable. T-bills are exempt from state and local taxes only. Federal income tax is still owed on the interest in the year the bill matures. If you hold a T-bill across a calendar year, tax is generally recognized at maturity.

Using TreasuryDirect for everything when a brokerage is more convenient. TreasuryDirect.gov works but is not the most user-friendly platform. If you already have a Fidelity or Schwab brokerage account, buying T-bills there integrates more smoothly with your existing investment workflow.

For comparison with I Bonds, which also offer state tax exemption but with an inflation-linked rate and a 12-month lockup, see I Bonds Explained. And if you are building a broader ladder of conservative instruments, the CD Ladder Strategy post covers how CDs complement T-bills in a staggered cash management approach.

This post is for informational purposes only and does not constitute financial or investment advice. Treasury security yields change at each weekly auction. Verify current rates at TreasuryDirect.gov or your brokerage before purchasing.